As families in the United States become more and more international, the approach that the estate planning attorneys use must take that into account.  If you are a US resident, live part time or full time in the US on a non-immigrant visa, or you own any type of property or business in the US, you could be subject to estate tax (the tax due on your wealth at death) as well as gift tax, on your US property, and in some instances on your worldwide estate.  Moreover, it is important to note that non-resident aliens have a very different regime when it comes to gift and estate tax (for example, a much lower estate tax credit that covers only $60,000 of property transferred at death), which means that such individuals potentially face a high estate and gift tax bill. 

First, if you are deemed to be a domiciliary of the US for estate tax purposes, ALL of your assets (including all assets located outside of the United Estate, even those that you acquired prior to becoming domiciled in the United States) may become subject to Federal Gift and Estate tax.  The US gift and estate taxes apply to your entire estate just as it would for a US citizen or green card holder.  It is possible to become a domiciliary of the US for gift and estate tax purposes even if you do not possess a Green Card or citizenship.  This is quite different from the test which determines whether someone is a US person for Federal Income tax purposes.  Specifically, a person is a US taxpayer for income tax purposes if they meet the substantial presence test (must be physically present in the United States (U.S.) on at least: 31 days during the current year, and 183 days during the 3-year period that includes the current year and the 2 years immediately before that, counting: all the days you were present in the current year, and a third of the days you were present in the first year before the current year, and a sixth of the days you were present in the second year before the current year) are a lawful permanent resident of the US, or make a first year election.)

If you are a Non-Domiciliary Alien (NDA), then you will still be subject to federal gift and estate taxation only on the following types of property:

  1. For gift tax purposes, typically only Real property and tangible personal property located in the US are subject to the U.S. gift tax.
  2. BUT the estate tax reaches the following: US real estate, tangible personal property located physically in the US, and securities or obligations issued by US persons or entities, such as stock in a US company, and notes issued by US persons or entities.

As noted above, an NDA can only exclude up to $60,000 in value of US-source assets from estate and gift tax, and the rest of your US assets can potentially be subject to US estate tax at rates of up to 40% plus applicable state estate taxes (Florida does not have a state estate tax, but you will still be subject to the 40% federal estate tax).  There is NO unlimited marital deduction.

There are a number of ways in which our firm can serve you and your family in the area of international estate planning.     

Pre-Immigration Planning

If you have not yet acquired domicile in the US, but you plan on doing so, we can help you with Pre-Immigration Planning, the goal of which is to put you in a position to make the most informed decisions as to how to proceed.  There are tools we can use and structures we can put in place for you to either avoid future estate tax issues, or to minimize it substantially. Pre-immigration planning often encompasses setting up irrevocable trusts, LLCs and other structures, which takes time and effort.  The strategies we help you choose should be fully implemented before you acquire domicile in the US, which means that the sooner you start the pre-immigration planning the higher the chance for success. 

Purchase of Real Estate in the United States

There are several issues that determine the best structure to hold real estate for each client.  For example, there are income tax considerations, gift and estate tax considerations, logistical issues, and the convenience.

  1. Direct Ownership: while being logistically the easiest option, direct ownership does not give you any confidentiality, as your name will be reflected in the public records and available to any person searching for your assets. If property is sold by a company or by an individual (non-resident), it is possible to get a lower tax rate which is equal to 20% of the profit.  There are no true benefits of direct ownership other than it generates no additional costs of ownership. 
    1. The there are numerous disadvantages of direct ownership:
      1. No protection from creditors
      2. No confidentiality
      3. Maximum tax on gift or transfer or property at death
  2. If you do NOT plan to move to the US or hold the property for a long time, you can own the US real estate through a US company.
    1. The main advantages:
      1. Favorable tax rates on profits when selling the property (20%) (if held through an LLC)
      2. unlimited control and ability to dispose of the property
      3. potentially no tax on gift of company shares
      4. protection from creditors
      5. the possibility of structuring ownership confidentially
    2. The main disadvantages:
      1. high (maximum) estate tax (this approach is often coupled with a purchase oflife insurance)
  3. If you do NOT plan to move to the US in the near future, but plan to own this property for a long time, ownership through a company registered outside the US would be an easy option.
    1. The main advantages:
      1. complete control and ability to dispose of the property
      2. no gift or estate tax upon the transfer of company shares during life or at death
      3. protection from creditors
      4. possibility of structuring ownership with confidentiality
    2. The main disadvantages:
      1. additional costs relating to the registration and maintenance of companies
      2. potentially higher tax rates when selling property. Instead of 20%, the tax rate can be about 35% of the profit.
  4. For high net worth individuals who plan to move to the US, the company itself can be held by an Irrevocable Trust.
    1. The main advantages:
      1. no gift or estate tax on property held by the Trust, potentially for several generations
      2. protection from creditors
      3. possibility of structuring ownership with maximum confidentiality
      4. possibility of giving the Trustee instructions relating to management of trust’s assets. Your property can be held by the Trust for generations, along with other assets
      5. possibility of including instructions for adding new beneficiaries (for example, children born after the creation of the Trust and purchase of property) automatically or under certain conditions
    2. The main disadvantages:
      1. Limited control or access to the property
      2. Additional costs relating to the establishment and maintenance of the structure

Additionally, there are numerous OTHER considerations which must be taken into account if the real property will be held for commercial purposes or will be an income-producing property. Finally, if you die owning US-situate property, your heirs may have to go through the time-consuming US probate process. We may be able to advise you on the best ways to structure owning US-situated property to avoid probate.

Coordination of the United States Estate Plan with Foreign Laws

We often work closely with foreign council to help the clients coordinate the US estate plan with foreign estate plan, or to help the clients understand the implications of foreign heirs inheriting such property.

Please contact our law firm today so we can learn more about your specific circumstances to provide you with personalized advice based on your needs and situation.